Saturday, March 2, 2013

Excellent Story OF Diesel Subsidy

Benefits of Diesel Subsidy: A Story from Mumbai

By sankaran srinivasan

The government has announced that bulk diesel consumers like Railways and State Transport Corporations have to purchase diesel at market-determined rates, while diesel purchased at fuel outlets will continue to receive subsidy. Assuming diesel subsidy as Rs 10 per litre, let us examine the effects of the recent government order.

Mr Suresh Kumar (not his real name), living in Bandra, Mumbai, maintains three cars, but we will keep the discussion to the SUV that only he uses. Mr Kumar’s SUV gives him 8 km per litre, and on average he drives about 2000 km every month. He thus purchases 250 litres of subsidised diesel, and utilises subsidy of Rs 2500 (250 litres x Rs 10 per litre) every month, or Rs 30,000 annually, for his SUV. This subsidy is borne by taxpayers, which include all citizens including the poor, for whom cost of essentials includes indirect taxes. But for Mr Kumar, the more he drives around, the more diesel he uses, and the more subsidy he utilises.

On the other hand, domestic worker Sonabai living in a Mumbai chawl, has to travel by BEST bus, spending Rs 30 on bus fare every day to and from work. But BEST, which is a bulk consumer of diesel, has to purchase diesel at market rate, and hikes the bus fare so that Sonabai spends Rs 40 every day instead of Rs 30. That is, Sonabai spends Rs 10 more every day (Rs 3650 more annually), while Mr Kumar avails of Rs 30,000 subsidy annually.

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Let us consider the cost to the environment. Noting that whosoever is responsible for consuming diesel, every litre consumed produces exhaust gases that pollute the environment. Whether Mr Kumar’s SUV carries one passenger or more, it consumes essentially the same quantity of diesel and creates the same quantity of exhaust gases. Mr Kumar’s SUV has a seating capacity of eight passengers, but usually it has only Mr Kumar himself. Thus, his SUV is used at one-eighth of its carrying capacity, but the diesel consumed, and the consequent pollution caused, is no less. As a single individual, he consumes the diesel that eight could have used. As assumed earlier, his SUV gives 8 km/litre or, put another way, uses 125 ml/km. Thus, if the SUV had eight passengers, each passenger would be effectively using 125/8=15.6 ml/km. But since Mr Kumar’s SUV provides transportation only for himself, the per capita diesel consumption of his SUV is 125 ml per km, and produces per capita pollution from burning 125 ml/km.

On the other hand, consider Sonabai’s bus. It has a seating capacity of 52 and a standing passenger capacity of 24, but when she travels it is “rush-hour” both ways, and the bus is packed with about 100 passengers. While it costs essentially the same to operate the bus whether it is empty or full, it is obviously most economical when the bus is full or over-full—occupancy is a major determinant of the economics of a vehicle. However, economics does not trouble Mr Kumar when he travels alone in his SUV and fills its tank with subsidised diesel using his credit card.

The bus consumes about 0.5-litre of diesel per km @ 2-km per litre. Thus, for every kilometre travelled during rush-hours when the bus carries 100 passengers, each passenger effectively uses 500/100=5 ml of diesel, and is responsible for pollution due to burning 5 ml of diesel. That is, the per capita diesel consumption in a bus is 5 ml per km, producing per capita pollution from burning 5 ml per km.

Thus, Mr Kumar ordinarily consumes 125/5=25 times as much diesel as Sonabai, and is responsible for about 25 times as much exhaust gas pollution as her. And, while she effectively multiple times more eco-friendly than Mr Kumar.

Finally, consider the traffic congestion on the roads. Mr Kumar’s SUV, like any vehicle, occupies road space when it moves or when it is parked on the roadside. It is true that a SUV is about half the size of a BEST bus, and a bus too occupies road space though only when it is on the move, because it is never parked on the roadside. Nevertheless, the per capita usage of road space has arguments similar to those for diesel consumption, and Mr Kumar uses much more road space, which is a public good, than Mrs Sonabai who represents the vast majority of urban poor. Thus Sonabai is far less demanding of civic amenities than Mr Kumar.

Thus, on a per capita basis, Mr Kumar uses more road space, consumes more diesel, and causes more pollution than Sonabai, and even gets his subsidised diesel at her cost. Further, there are many lakhs of people like Sonabai and only many hundreds of people like Mr Kumar, and it does not require rocket science to understand who subsidises whom, and who is more responsible for diesel consumption, vehicle exhaust pollution and road congestion. Further, at the hiked bus fare, Mrs Sonabai spends Rs 40 per day or Rs 1200 per month on transport, 20 per cent of her Rs 6000 per month wages. But Mr Kumar spends Rs 13,000 per month (250 litres@Rs 52/litre) on diesel for his SUV and it is less than one per cent of his declared monthly income of several lakhs.

This discussion indicates who is most responsible for some of the ills of urban living, and hopefully will serve to urge the government to adhere to its own National Transport Policy, which incentivises affordable public transport (not Volvo AC buses that Sonabai cannot afford) and disincentivises use of private motor vehicles. Contrary to Veerappa Moily’s assertion, charging market rates for bulk diesel consumers forces those who are already poor, to pay more for their living. Thus, the policy of the present and previous Union governments is arguably pro-wealthy and effectively anti-poor

From today, diesel will be costlier for Railways, State Transport Corp
orations and other bulk consumers by about one rupee a litre (excluding taxes). With taxes, the overall impact would be around Rs 1.25 a litre.

The price remains unchanged for the retail consumer, who however gets a reprieve on cooking gas. The price of non-subsidised domestic LPG has been reduced by almost Rs 38 a cylinder effective March 1.

According to LPG distributors, the majority of the domestic LPG consumers have exhausted their quota. In Delhi, diesel for bulk consumers will cost about Rs 59-60 a litre. With this hike, the Railways annual fuel bill will be go up by around Rs 290 crore.

But an oil company official pointed out that it is difficult to give the exact end price because bulk consumers are often offered discounts.

On January 16, the Government had introduced dual pricing for diesel. The public sector oil marketing companies were allowed to align these prices with market rates.

Diesel cars will still fuel sales figures

According to car makers Diesel cars will still drive the sales figures due to their lower running cost and advanced technology

Diesel's share in the passenger vehicle segment has been growing over the years as the price gap between the fuels widened after the government deregulated the price of petrol while maintaining the subsidy on diesel. New launches in the diesel segment, especially in the utility vehicle/SUV segments, also added to the buoyancy for diesel cars. Also Read:Diesel price hike lesser of two evilsDiesel now accounts for more than half the cars sold in India, growing at a rapid pace at a time when the demand for petrol cars is shrinking fast. In fact, the growing demand for diesel vehicles in the last few months has resulted in massive waiting periods across diesel models like the Maruti Swift, Hyundai Verna and Mahindra's XUV500.On the other hand, petrol cars are readily available off the shelf, and with attractive discounts. In many cases, where vehicles have variants in both fuels, the diesel version accounts for as much as 80 per cent of a model's sales.Jnaneswar Sen, Sr VP (Sales &Marketing) at Honda Cars India, said, “The mindset of the car buyers is strongly skewed in favour of diesel even when their lower daily run means that petrol cars will be beneficial for them.”Honda does not have a diesel engine in its portfolio and has seen a severe pressure on demand for its cars after themarket shifted away from petrol cars. "Even today, for a majority of car owners who drive moderately, petrol is still cost effective from the perspective of total cost of ownership. However, it is the mindset that makes people buy diesel cars as they just look at its lower running cost,” he addedFrom this perspective, the gap between petrol and diesel fuel price is still too large tosee any shift in the current buying pattern ," Sen said. P Balendran, VP at GM India, also said that petrol car sales will not get a boost despite the steep hike in diesel prices. "While the market distortion has been addressed to some extent, the price gap between the two fuels is still too large."

The contribution of diesel cars to total car sales surged to 58% in 2012 from 28% in 2010,

I am giving below sales Figure of Top 20 cars only in the month of November 2012 and December 2012 which will enable you to assess the value of subsidy consumed by top rich people who has the capacity to buy a car.More than 850000 ( 60% of total car sale in India ) diesel cars are sold every month and if they use at least 5 liter per day on average, consumption of 4250000 liters of diesel increased every month in total use of diesel per day in the country . It is important to keep in view that majority of diesel cars are used by non farmers and non-poor people of the country.It may be concluded that lion's share of diesel consumed in the country is not at all consumed by poor people and hence any subsidy on diesel appears to be pro rich only.On the contrary the statistic on BEST given below is eye-opener where poor passengers have to pay more due to ill-motivated anti -poor policies of the corrupt congress government .As of 2011, the BEST runs a total of 4,680 buses,[2][11] ferrying 4.8 million passengers[12] over 365 routes, and has a workforce strength of 38,000, which includes 22,000 bus drivers and conductors (this comes to an average of 11.2 employees per bus).

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An internal Planning Commission note shared by SIAM says:

Personal cars consume 0.6% of the diesel consumed in the country.

Goods vehicles consume the maximum 37.9%

Agriculture 18.8%

Buses account 6%

Taxis 2.1%

Jeeps/MUVs 2.5%

Three-wheelers 3.6%

Power 6.8%

Railways 3.7%

Industry 5.6%

Others 12.5%

Currently, small cars in India attract an excise duty of 10% while big cars are taxed at 22%. Ahead of the budget, there is speculation that the government may hike the excise duty on diesel cars to "make up for the subsidy" their owners receive on account of the lower price of the fuel. The Delhi government already imposes extra registration tax on diesel vehicles, though it attributes this to concerns on environment pollution by diesel cars.http://www.team-bhp.com/forum/indian-car-scene/113163-personal-cars-account-0-6-indias-diesel-consumption.html